Frequently Asked Business Question:
I own a number of residential properties around Belfast that I let out. I am thinking of selling one before the end of the current tax year. When do I pay the capital gains tax on the sale of this property?
New rules mean that UK residents with capital gains tax to pay on the sale of UK residential property have to report and pay this to HMRC within 30 days.
The new rules apply to all UK residents who exchange contracts on the sale of UK residential property on or after 6 April 2020 where there is some capital gains tax to pay on the disposal. Prior to April 2020, you had either 10 or 22 months to pay the capital gains tax, so this is a big change.
You do not need to make a 30-day report in any of the following scenarios:
- There is no capital gains tax to pay. This will most commonly be the case where you are disposing of a property which has been your main residence throughout the entire period of ownership. Full private residence relief can also apply in other circumstances. Alternatively, there may be no capital gains tax to pay because the chargeable gain does not exceed the annual exemption (£12,300 for 2020/21), or there is a capital loss.
- The property is not residential.
- The property is not in the UK.
If you are required to make a 30-day report, then the 30-day clock starts from the date of completion, not the date of exchange. If the 30-day report is not submitted by the deadline, a £100 late-filing penalty will apply. Further penalties will be applicable for a continued delay.
You do not need to complete a tax return for this disposal if there is no other reason that you would need to complete a tax return and you are not obliged to register for Self-Assessment in order to report the disposal if you have already made a 30-day report.
If you do not pay the tax due within 30 days there will be penalties and interest charged for failure to do so. The new rules apply to individuals, trustees, and personal representatives.
Non-UK residents are already within this regime and from 6 April 2019, this was extended to apply to direct and indirect disposals of all UK land (whether or not a gain arises).
Non-residents must also report on:
- residential UK property or land (land for these purposes also includes any buildings on the land)
- non-residential UK property or land
- mixed use UK property or land
- rights to assets that derive at least 75% of their value from UK land (indirect disposals)
Landlords need to be particularly vigilant and they have faced so many changes over recent years; the restriction to the mortgage interest relief, additional Stamp Duty Land Tax and the new regime for non-UK residents mean that the new payment regime is yet another cash-flow blow.
If you have sold a property, you should add the taxable gain (that is, after taking account of any available annual exemption and losses) to your estimate of your other total taxable income in the year of the disposal:
- If the total is less than the UK income tax higher rate threshold (£50,000 for 2020/21), then the rate of tax payable will be 18%.
- If the total exceeds the UK income tax higher rate threshold by less than the amount of the taxable gain, then the amount of the excess is chargeable at 28% and the rest at 18%.
- Otherwise (if total taxable income is £50,000 or more, for 2020/21), the gain will be chargeable at 28%.
Any capital gains tax is due and payable within the 30 days.
For more information and/or assistance, please do not hesitate to contact me at the email address below or phone our Tax Team